China is the world's leading producer of energy from renewable sources and is on the way to overtaking developed countries in creating clean technologies, according to a report by the Climate Group.

Published today, the group's report, China's Clean Revolution, shows that supportive government policies investing billions of dollars in energy efficiency and renewables are driving huge levels of innovation in China.

The Climate Group says that, despite its coal-dependent economy, China has become a world leader in the manufacture of solar photovoltaic technology - its six biggest solar companies have a combined value of over $15bn (£7.57bn). Around 820 megawatts of solar PV were produced in China in 2007, second only to Japan.

The country already leads the world in terms of installed renewable capacity at 152 gigawatts. In the next year, China will also become the world's leading exporter of wind turbines and it is also highly competitive in solar water heaters, energy efficient home appliances, and rechargeable batteries.

"For too long, many governments, businesses and individuals have been wary of committing to action on climate change because they perceive that China - the world's largest emitter - is doing little to address the issue," said Steve Howard, chief executive of the Climate Group.

"However, the reality is that China's government is beginning to unleash a low-carbon dragon which will power its future growth, development and energy security objectives."

The report says that investment in renewable energy in China (around $12bn in 2007) is almost level with world leader Germany as a percentage of GDP.

The Climate Group also highlights China's fuel efficiency standards for cars, which are 40% higher than those in the US. Biofuel production is also on the rise: by using marginal land that is half the size of the UK, China is the already world's third largest producer of ethanol.

The country also has a target to reduce energy intensity by 20% on 2005 levels by the end of this decade.

Chanhua Wu, Greater China director at the Climate Group, said that, despite the positive news from China, the litmus test for the country's move towards a low-carbon future would depend on whether it could reach two milestones required to avoid dangerous climate change. First, a peak in greenhouse gas emissions by 2020 and second, progress towards a global emissions goal of two tonnes of CO2 per capita by 2050.

In 2007, China emitted 5.1 tonnes of CO2 per capita compared with the EU's 8.6 tonnes and the 19.4 tonnes for the US.

"The jury is still out on whether China and the other countries can reach these challenging targets, but the evidence [in the report] shows that China has already stared on a trajectory to becoming an important global hub for low carbon investment, innovation and growth in the coming decades," said Wu.

"I believe China will no longer be a developing country following where others have led, but a pioneer leading the way."